The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on 31st of January, 2018 and decided to keep the refinancing rate unchanged.
Based on current forecast, the annual inflation rate will start to decline in the first few months of 2018 and remain close to target level of 3% over 2018. By the end of 2017, the nominal effective exchange rate has notably depreciated, increasing inflation expectations and creating upward pressure on inflation. As a response, the Monetary Policy Committee met on 13th of December and decided to tighten the monetary policy. Recently, the nominal effective exchange rate has started to appreciate. However, the effect of the recent depreciation on inflation persists. However, despite higher than expected GDP growth in 2017, aggregate demand remains below its potential level, having a downward pressure on inflation. Thus, there is no need for further tightening of the monetary policy. The future decisions of the Committee will rely upon the pace of neutralization of factors having an upwards pressure on inflation.
In December, the annual inflation rate was equal to 6.7%. The contribution of temporary exogenous factors (independent from monetary policy) was equal to 2.9 percentage points. With the exhaustion of temporary factors, the inflation is expected to gradually decline from the beginning of 2018. During 2018 the inflation rate will be affected by several other exogenous factors such as the increase of administrative prices on electricity and water, and the increase of international prices of oil, that started in 2018 and will continue to affect inflation in 2018. Other things equal, the contribution of these factors will equal to 0.3 and 0.5 percentage points respectively.
The positive trends remain in the external sector. Following the increase in the volume of remittances, tourism revenues and export, based on preliminary estimates, current account deficit has significantly improved in 2017. Based on the current estimates, the current account deficit will continue to improve in 2018, decreasing the exchange rate pressure on the inflation rate.
The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure the price stability.
The next meeting of the Monetary Policy Committee will be held on14th of March 2018.